Closely Watched Copper Fund Hits Another Snag

By Brendan Conway

The exchange-traded fund industry is having a tough time doing for copper what it did so well for silver and gold: Building a fund that stockpiles the metal in a vault.

The idea has proven attractive in the case of gold and silver: Funds like SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) free investors from the quirks of relying on the commodity futures markets. But the idea has encountered stiff resistance within the copper industry, which says it fears supply disruptions at the hands of investors.

Southwire Co., the largest U.S. producer of copper wire, and Encore Wire (WIRE), another wire firm, launched a legal challenge to the creation of JPMorgan Chase’s (JPM) copper ETF, citing worries over “an investor-financed squeeze of the market,” reports the Wall Street Journal’s Matt Day. The effort specifically asks for a review of regulators’ decision in December to approve the JPM XF Physical Copper Trust ETF.

From the WSJ:

“There is concern among the industrial users that they didn’t get a fair shake with the SEC,” said Robert Bernstein, a lawyer representing Southwire and Encore. “They remain deeply concerned that the trading of these shares will have devastating effects on their companies and the markets they serve.”

Global copper supplies have fallen short of demand in three of the past four recent years. Copper prices hit an all-time record high in February 2011 and have since declined. Copper futures on the Comex division of the New York Mercantile Exchange rose 0.5% Tuesday to $3.7365 a pound.

Copper is used in a wide range of products apart from wiring, including plumbing, automobiles and consumer electronics.

BlackRock (BLK) has its own copper ETF in the works. The SEC has said it would make a decision on BlackRock’s by Feb. 22, according to the WSJ.

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